6 countries uniting to break Russian gas near-monopoly

By Ivan Watson
CNN

ISTANBUL, Turkey (CNN) - Officials from six countries gathered Monday in Turkey and signed a deal to build a U.S.-backed pipeline, aimed at breaking Russia's near-monopoly on natural gas supplies to Europe.

The proposed Nabucco pipeline is to run from Turkey's eastern border, through Bulgaria, Romania and Hungary, to a key gas terminal in Baumgarten, Austria.

Germany also is a partner in the deal, which was signed in the Turkish capital, Ankara.

Russia controls the current network of pipelines that supply Europe with natural gas.

To head off the Nabucco proposal, Russia had proposed a competing natural gas pipeline to southeastern Europe. The proposed South Stream pipeline would pass under the Black Sea and connect with Bulgaria. Russia and Italy would each control half of that pipeline.

However, Nabucco got a boost after Russia turned off the gas to Europe in January, during the latest in a series of price disputes with Ukraine, according to industry analysts.

The Nabucco project is budgeted at 7.9 billion euros (about $11 billion).

Since the idea's inception in 2002, plans for Nabucco had languished amid disagreements among consortium partners and lack of commitment from natural gas suppliers.

Turkey had demanded to retain 15 percent of the gas passing through the pipeline for consumption and export, which its European partners rejected.

The energy minister of Azerbaijan attended Monday's signing.

Gas from Azerbaijan's Shah Deniz 2 field will be a crucial component of the project. European officials have raised hopes that other gas producers, such as Iraq and Turkmenistan, also might contribute to the pipeline.

The Intergovernmental Agreement on Nabucco was signed by Turkish Prime Minister Recep Tayyip Erdogan, and the prime ministers of four European Union countries, in addition to the president of the European Commission, Jose Manuel Barroso.

Big hurdles remain for the pipeline project named after an opera by Verdi.

Consortium members must raise billions of dollars for the Nabucco project. Construction has not begun, and gas is not projected to be pumped through until 2014.

Still, industry analysts called Monday's intergovernmental agreement a significant development.

"It's one of those steps that moves Nabucco out of the possible column and into the probable column," said John Roberts, an energy security specialist with Platts.

"My own guess is roughly by the end of the year, it will be pretty clear that Nabucco will be built."

According to Turkey's Erdogan, "We want Iranian gas to be carried to Europe through Nabucco pipeline when conditions are met. We also believe that it will be possible one day to offer Russian gas to the European market through Nabucco. In fact, it is also possible for Qatar to take part in the project, thanks to a liquified natural gas terminal to be set up in Turkey."

U.S. and European officials have opposed allowing Iranian gas supplies to be linked to the Nabucco pipeline.